If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $60,000) to oversee production. However, the company has sufficient idle tools and machinery such that no new equipment would have to be purchased. The rent charge above is based on space utilized in the plant. The total rent on the plant is $80,000 per period. Depreciation is due to obsolescence rather than wear and tear.

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abiolataiwo2015 abiolataiwo2015 · Answer 1 · 2021-04-16T04:01:32+02:00

Answer:

$20,000

Explanation:

Calculation to determine the financial advantage (disadvantage) of making the 40,000 starters instead of buying them from an outside supplier

First step is to calculate the Relevant cost of making the starters

Relevant cost of making the starters=($3.1*40,000)+($2.70*40,000)+($0.6*40,000)+$60,000

Relevant cost of making the starters=$124,000+$108,000+$24,000+$60,000

Relevant cost of making the starters=$316,000

Second step is to calculate the Relevant cost of buying the starters

Relevant cost of buying the starters=(40,000*8.4)

Relevant cost of buying the starters=$336,000

Now let calculate the Financial advantage

Financial advantage=$336,000-$316,000

Financial advantage=$20,000

Therefore the financial advantage (disadvantage) of making the 40,000 starters instead of buying them from an outside supplier is $20,000